investor discussion pack - westpac · 2,559 2,539 3,492 (414) (3,940) 4,755 fy04 net interest...

Investor Discussion Pack

November 2004

Presentation Title & Date Investor Discussion Pack November 20042

IndexSummary of results

Consistent growth and return 4Segment contributions 8Market share 10

Business and Consumer Banking 11Business markets strategy 12

Institutional Bank 15New Zealand 21BT Financial Group 23Net interest income analysis 30

Loan and deposit growth 31Margin analysis 33

Non-interest income 35Credit card interchange 36

Expenses 37Deferred expenditure 39Capitalised software 40

Risk management 42Credit quality and portfolio composition 43Bad debt analysis 45

Housing market 52Portfolio characteristics 56

Group Business Unit and Pacific Banking 60Dividends 62Capital 63Basel II and IFRS 65Structured finance 67Strategy 69Economic outlook 73Factors impacting 2005 earnings 772004 Outlook 79Investor Relations Contacts 80


Maintaining consistent growth and return

• High quality result – maintaining the balance- Cash earnings $2,559m up 13%- Cash earnings per share of 139 cents up 11%- Cash return on average equity 21%- Full year dividend of 86 cents, fully franked up 10%- Expenses up 5%- Cost to income ratio 49.2% down 210 basis points

• Key drivers of growth- Solid growth in loans and acceptances up 14%- Disciplined pricing - margins down 9 bps- All businesses delivering double-digit growth in

cash earnings• Quality of earnings maintained

- Strong asset quality: net impaired assets to equity and general provisions down 40 bps

• Maintained leading sustainability position All comparatives on prior corresponding period


Driving the gap between revenue and expenses

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,500

1999 2000 2001 2002 2003 2004

Revenue 7.3%

Expenses 3.4%

Core earnings 12.1%

1. Underlying basis (excl. significant items but not adjusted for acquisitions and disposals)

2. Excluding goodwill amortisation

5 Year CAGR 1

2

5 year CAGR

20.1%ROE (5 year avg)

11.0%Cash EPS

10.6%Cash earnings

Revenue and expense performance ($m)


A revenue driven result

Movement in cash earnings ($m)*

* Tax-effected and excluding outside equity interest

2,559

2,271

(44)

53

(133)

412

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2003 Revenue Expenses Bad Debts Tax 2004


Cash earnings – maintaining the growth

97,3308,010Operating income83,0043,255Non-interest income

2,5592,5393,492(414)

(3,940)

4,755

FY04

104,326Net interest income

132,271Cash earnings162,183Net profit after tax & OEI202,919Net profit before tax15(485)Bad debts

(5)(3,763)Operating expenses

% ChangeFY03 – FY04

FY03$m


Consistently delivering strong growth and returns

Economic profit ($m)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1999 2000 2001 2002^ 2003 2004* Assumes 2H99 dividend was fully franked^ Underlying EP excludes significant items in 2002

13% 5 year CAGR*

41Westpac

0NAB

21Commonwealth

36ANZ

TSR (%)Company

Total Shareholder Return (TSR) for period 1 Oct 01 - 30 Sep 04

Source: Mellon


Sound contribution across all businesses

0 500 1000 1500

NZ

InstitutionalBank

BT

Business&

ConsumerBanking

2002

2003

2004

Cash earnings ($m)

$m

Growth 2003 – 2004 (%)

19

25

16

16

1. NZ % growth in AUD terms

1


Composition of cash earnings and operating income

Other5%BT

8%

New Zealand16%

Institutional Bank19%

BCB - Business

25%

BCB - Consumer

27%

Other2%

BCB Business

27%

Institut-ional Bank

15%

New Zealand

15%

BT8%

BCB Consumer

33%

Composition of cash earnings Composition of operating income% of total group

operating incomeMortgages 13%S&I 14%Cards 6%Other 27%

Total Business and Consumer Banking

(BCB) 52.8%


Aggregate market share

• Westpac has consistently increased its market share in key segments over the last three years (to 30 Sep):

• Business lending up 220bps• Retail deposits up 130bps

• Cautious approach to housing and personal unsecured lending over the last three years (to 30 Sep):

• Household down 110bps

Australian financial system market share (%)

10

11

12

13

14

15

16

17

18

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total credit Retail deposits

Source: RBA, Westpac

+20bps14.1%14.3%Retail deposits

Credit-80bps14.6%13.9%Household (housing & other personal)

13.4%12.5%

Sep 04%

-20bps13.6%Total credit+60bps11.9%Other (mainly business)

Change (bps) – full year

Sep 03%

Australian market share – RBA financial system aggregates

Note: Westpac’s ‘household’ and ‘other’ market share statistics have been adjusted following the RBA’s revision of its methodology for calculating credit data to better reflect the impact of securitisation, announced 31 May 2004.


BCB – profitable growth momentum

• The powerhouse of Westpac’s earnings with 16% growth in cash earnings from a business contributing 53% of Group earnings

• Substantially enhanced customer satisfaction due to:- Business banker roles - Extended opening hours- Additional Ask Once co-ordinators

• Solid margin performance in face of strong competition

• Non-interest income suppressed by change in interchange fees in 1H04

• Expenses incorporate continued investment in front-end capability

52.2%

1,350

(569)

1,919

(340)

2,259

(2,471)

4,730

2004

(6)(321)Bad debts

220bps54.4%Expense to income

161,165Cash earnings

(15)(494)Tax & OEI

161,659Operating profit

141,980Core earnings

(5)(2,361)Operating exp

94,341Operating income

% Change

2003$m


Consistent strategy since 1999 to capture business market

• Business lending (SME and Middle Market) up 15% against market growth of around 8%

• Strategy focused on better meeting the needs of small and medium businesses

8%

9%

10%

11%

12%

13%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Australian business credit market share (%)

Source RBA, Westpac

Business Online revamped and updated

Selective return of business bankers back to the branches

Decision making process streamlined in 1999

Further process improvement being rolled-out under re-engineering project (Pinnacle)

Implementation of industry specialist teams

Roll-out of business CRM underway

Better relationshipsFast decision makingKnow my business

What small and medium businesses are asking …


Industry specialisation – a key differentiator

• Industry specialisation work started in 2000

• Ten industry sectors targeted including:• Packages represent unique solutions for

each sector• Supported by a nationwide network of

industry specialist managers and relationship managers

� 1%� 17%� 4%Industry G(2001)

� 2%� 17%� 8%Industry F(2002)

� 5%� 40%� 5%Industry E(2003)

� 5%� 7%� 2%Industry D(2003)

� 9%� 7%� 33%Industry C(2001)

� 4%� 14%� 29%Industry B (2002)

� 4%� 18%� 24%Industry A(2002)

Average product

penetration per

connection

Average footings per connection

Number of Connections

Improvement since package introduced*

Industry

* Improvement on existing customer base before solution launch, after runoff


Business strategy is delivering

SME satisfaction

45%

50%

55%

60%

65%

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep04

WBCPeer Average

363432

2927

23 22*

0

5

10

15

20

25

30

35

40

45

2H01 1H02 2H02 1H03 2H03 1H04 2H04

Business loans and acceptances ($bn)

* Decline due predominantly to sale of AGC

Middle Market & Priority satisfaction

55%

60%

65%

70%

75%

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep04

WBCPeer Average

Business - TNS Business Finance Monitor is since June 2002.


Institutional Bank – reclaiming lead bank status

• Solid revenue growth of 10% although Financial markets softer

• New income streams established (SCG)• Higher expenses from

- Restructuring charge $11m- Private equity performance fees $13m- Epic consolidation $22m

• Significant improvement in bad debts• Investment securities portfolio positively re-

valued by $17m• Write-off in New York FITB - $12m

Lead bank relationship1 (%)

1 Peter Lee & Associates – 2004* Rank within each category

05

10152025303540

Aust

lead

bank

NZ

lead

bank

Deb

t Cap

ital

Mar

kets

top

bank

Lead

Dom

Tran

sact

ion

bank

FX m

arke

tsh

are

20032004

=1*

2*1*

1*

1*

2*2* 2*

2*

1*

44.7%

481

(207)

688

5

683

(553)

1,236

2004

105(107)Bad debts

(260bps)42.1%Expense to income

25384Cash earnings

(31)(158)Tax & OEI

27542Operating profit

5649Core earnings

(17)(472)Operating exp


% Change

2003$m


Financial markets - enhancements underway

• Financial markets result consistent with expected volatility, although recent performance has been below average

• Measures to improve performance implemented:

- Changes to coverage of interbank markets

- Operational changes

• Higher return for risk taken evident in 2H04

Financial markets income ($m)

050

100150200250300

1H03 2H03 1H04 2H04FX Interest Rate Product FM Other

Distribution of Financial markets daily P&LDistribution of P/L outcomes

20

20

4

13 3 4

810

21

38

31

37

25

22

18

7 86

2 1 0 0 0 1 0 02

0

5

10

15

20

25

30

35

40

45

50

<-6

-6 to

-5.5

-5.5

to -5

-5 to

-4.5

-4.5

to -4

-4 to

-3.5

-3.5

to -3

-3 to

-2.5

-2.5

to -2

-2 to

-1.5

-1.5

to -1

-1 to

-0.5

-0.5

to 0

0 to

0.5

0.5

to 1

1 to

1.5

1.5

to 2

2 to

2.5

2.5

to 3

3 to

3.5

3.5

to 4

4 to

4.5

4.5

to 5

5 to

5.5

5.5

to 6

6 to

6.5

6.5

to 7

7 to

7.5

7.5

to 8 >8

P&L ($Am)

Freq

uenc

y (d

ays)

Monthly average VaR ($m)

0369

121518

Jun03 Sep03 Dec03 Mar04 Jun04 Sep04

Monthly average VaRBoard Limit


Investment securities

• Upward revaluation in portfolio of investment securities $17m – based on current quoted prices

• Continue to actively manage exposure however markets remain relatively illiquid

• Modelling suggests value to be had from retaining some investments until maturity

• Portfolio being managed down progressively

- 30 Sept 03 US$110m- 30 Sept 04 US$86m

S&P sub investment grade credit spread index

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Dec-98

Aug-99Mar-

00Oct-

00Ju

n-01Ja

n-02Aug-02Apr-0

3Nov-0

3Ju

n-04

Bas

is P

oint

s

Source: www.standardandpoors.com

http://www.standardandpoors.com/


WIB - Structure and distribution of alternative assets

300

379

82

40

66

30

365

$m

��Westpac Office Trust

��Australian Energy Income Fund

�

�

�

Trust Structure

Single Asset

��

Hastings Diversified Utilities Fund (Epic)

��FAL Property Trust

��Hastings Income Trust

��Halcyon Notes

��

Electranet(Hastings Infrastructure Fund)

Multi AssetIPOWhole-

saleRetailUnlistedListed


Epic

• On 2 June 2004, Hastings Funds Management (51% owned by Westpac) acquired a 100 per cent holding in three strategically placed natural gas transmission pipeline assets (“Epic”) via a trust structure including:

- The Moomba to Adelaide Pipeline System in South Australia;

- the South West Queensland Pipeline in Queensland; and

- the Pilbara Pipeline System in Western Australia

• Assets to be sold to investors via the Hastings Diversified Utilities Fund – IPO announced on 29 October 2004

-$297mDeduction to Total Regulatory Capital and ACE

+$360mRisk Weighted Assets

+$22mExpenses

Minor

Impact FY04

Cash Earnings

• Assets consolidated as 100% of seed equity provided by Westpac

• Assets remained on balance sheet as at 30 September 2004


Quadrant – Westpac’s private equity business

• Westpac operates a number of small private equity funds principally investing in a small number of unlisted companies – the Quadrant funds

• The funds have a 10 year life and source money from high net worth individuals along with seed capital from Westpac

• In 2004, one of those funds achieved a very high return from investments in Pumpkin Patch, Village Life, Law & Economics Consulting Group (LECG) and Tasman building products. This performance had the following financial consequences:

- an increase in reported revenues by around $43m, a combination of a direct return on funds investment and performance fees from the management of the funds; and

- an increase in reported expenses of around $13m related to performance fees payable to managers

• These results have been reported in the Institutional Bank


New Zealand – repositioning delivers growth

• Benefits from repositioning the business - Improved lending growth, particularly

housing- Increased brand awareness

• Momentum in all key segments• Effectively managing margins in a

competitive market• Higher expenses to support an increase in

customer facing staff• Dynamic provision factor changes, $9m

benefit

48.2%

451

(210)

661

(41)

702

(653)

1,355

FY04

24(54)Bad debts


10409Cash earnings

(19)(177)Tax & OEI


10640Core earnings



% Change

FY03NZD$m


New Zealand – improving market share

• Total lending in New Zealand has increased 15% compared to total Private Sector Credit Growth of 12% for the same period.

• Growth in lending has occurred across the board.

-10-505

1015202530

2000 2001 2002 2003 2004

Market share Share of new growthNZ Housing market share monthly (%)

NZ middle market market share1 (%)

05

1015202530

2003 Q204Westpac ASB National BNZ ANZ

1. TNS Business Finance Monitor Results

NZ SME market share1 (%)

10121416182022242628

2000 2001 2002 2003 Q204WBC ASB National BNZ ANZ

change in measure from ACN to TNS

1. TNS Business Finance Monitor Results


BT Financial Group – sustained improvement

• Integration virtually complete on time and ahead on synergies

• Sustained fund performance improvement and ratings upgrades

• Well linked into Westpac customer base- 28% rise in corporate super FUA- Wrap FUA up 44%, including $800m

rise in Wrap from internal planners• Good claims experience assisting life

insurance performance

60.2%

196

(54)

250

-

250

(378)

628

FY04

-Bad debts


16169Cash earnings

(13)(48)Tax & OEI


15217Core earnings


10571Operating income

% Change

FY03$m

29Organic growth

4Review of bank owned planner channel (Sunrise)

3782004 Expenses

9Investments in integration6Increase in share of group allocated costs

(39)Integration synergies realisedDuring 2004

3692003 expenses1

2004 BTFG Expenses ($m)

1. Grossed up for 1 month of BTFM


BTFG integration largely complete

• Project delivered on time and ahead on synergies

• $96m in synergies achieved in 2004 -$48m more than originally estimated at acquisition

• Expected 2005 synergies remain at $116m

• Finalisation of acquisition accounts resulting in reduction to goodwill of $26m in Australia and $7m in New Zealand

Synergies (expense and revenue) ($m)

46 48

65

51 54

85

116

96

0

20

40

60

80

100

120

140

2003 2004 2005

Synergies estimated at acquisitionUpdated estimated synergiesActual synergies achieved

Acquisition provisions

334Fair value provision

825Restructuring provision

Sep 04Sep 03$m


Performance turnaround: Australian equities

BT Core Fund1 vs S&P/ASX300 Accumulation Index

-2.0%

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

May-02

Sep-02

Jan-0

3May

-03Sep

-03Ja

n-04

May-04

Sep-04

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Monthly portfolio excess return (LHS)One-Year Excess Return (RHS)

1. BT Institutional Core Australian Share Sector Trust. Benchmark: ASX300, Pre Fee / Pre Tax

0

5

10

15

1Mth 3mth 1yr 3yrs0

5

10

15

20

Fourth Quartile Third QuartileSecond Quartile First QuartileBT Performance

Source: Intech Interim Survey – periods to 31 August 2004

BT Balanced fund performance against market


Improved researcher ratings/net fund flows

Quarterly net funds flows ($m

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

Dec-02

Mar-03

Jun-0

3Sep

-03Dec

-03Mar-

04Ju

n-04

Sep-04

Retail flows Wrap FlowsInstitutional

Source: BTFG internal numbers

Large Cap Australian Equities – Flagship Retail Fund Ratings*

Rating

BuySellInvestorweb

2 Star1 StarMorningstar

Recommend

3 star

A

This year

1 starASSIRT

Sell and then Hold

B

Last yearResearcher

Lonsec

Van Eyk

*Retail flagship fund is the BT Australian Share fund


Growth in wealth products remains strong

9

n/an/a142.1Institutional310.4310.4Broking

4.058.0Retail

n/a4.8213.6Margin lending410.376.7Life and risk217.5310.7Wrap and master trust115.456.5Corporate super

RankMarket share(%)Rank

Market share (%)Product

Share of new businessCurrent Australian market share

Sources: Retail& Wrap & M’trust - ASSIRT Preliminary market share report August 2004, data as at 30 June 2004Corporate super - Dexx&r Employer Super League Table June 2004Life and risk - Dexx&r Life analysis, Quarterly Statistics ending 31 March 2004Margin lending - BT loan book verses RBA industry total – June 2004Broking - ASX market analysis August 2004Institutional - Investor Supermarket March 2004


Australian funds under management

40.53.7

8.1

10.0

3.1

2.8

5.2

7.6

Sept 03 Sept 04

Asset class $bn

63%27.643.5TOTAL12%0.54.2Other*

81%6.58.0International Equities

84%9.211.0Australian Equities

81%2.63.2Property

33%1.54.6International Fixed Interest

55%3.15.6Australian Fixed Interest

61%4.26.9Cash

Retail %RetailTotal

*Includes FX, currency & asset allocation


Insurance business

94347Australia

115

17

33

18

FY04

$m

109

14

32

20

FY03

$m

6Total

21Lenders mortgage insurance (Australia)

3General Insurance (Australia)

(10)NZ

Life insurance

% growth FY03 –FY04

Cash earnings• Insurance operations have continued to perform well

• Solid growth in risk in-force premiums, up 3%. Performance supported by positive claims experience

• General insurance focused on consumer insurances particularly home and contents insurance. Earnings supported:

- Strong housing growth - Good underwriting conditions

• Lenders mortgage insurance is an attractive business given synergies with home lending and low losses on mortgage loans. Continued growth given:

- Continued solid housing activity- Continued low levels of delinquencies


Net interest income analysis

• Net interest income up 10%

• Behind these movements has been

– Balance sheet growth up $565m

– Rising interest rates supporting deposit margins and earnings on free funds

– Additional hybrid capital contributing to reported spreads

– Business mix changes led to a decline in overall margins

4,326

4,755

222

197

9068

(182)

565

3,000

3,500

4,000

4,500

5,000

5,500

2003 BalanceSheet

Growth

Spread Hybrids FreeFunds

2004

Tax equivalent gross-up

Movement in net interest income ($m)


Loan growth robust

67

66

139057

1H04 -2H04

191175

2272333

78892

1H04

202188

2282636

79299

2H04

57Personal (loans & cards)1282Housing1189Consumer (Australia)

% Change1

1314

13151515

2H03-2H04

2BT Financial Group

Business Unit

32Business (incl. equip. finance)22Westpac Institutional Bank25New Zealand ($NZ)

Group

185164

2H03

Avg. interest earning assetsNet loans and acceptances

$bn

1. % changes have been calculated before rounding of numbers


Deposit growth

% Change1

1414

21

828

78

2H04 –2H03

172136

35

1812

2449

1H04

131114Westpac Institutional Bank

22324Business (Australia)34750Consumer (Australia)

88

16

3

2H04 –1H04

129147Total deposits

Business Unit

1719New Zealand ($NZ)

3441Other 2

Group

157179Ave interest bearing liabilities

2H032H04$bn

1. % changes have been calculated before rounding of numbers2. Other include Treasury and Pacific Banking


Analysis of group margin movements

2.62% (6bps)

(3bps) 1bps (6bps)3bps (1bps) 3bps 2.53%

2.4

2.5

2.6

2.7

2.56% 0bps 1bps 0bps 0bps 1bps (7bps)

2.50%

2.4

2.5

2.6

2.7

1H04 Assetspread

Asset mix Liabilityspread/mix

Fundingmix

Hybrids Other Free funds 2H04

(1bps)

Margins movement 1H04 – 2H04

Margin movement 2003 – 2004

2003 2004


Margin and spread trends

• Impacting Australian spreads in 1H04: - Transitory change in the cash/bills

spread - Funding portfolio composition as strong

lending not matched by deposit growth - Mortgage spreads lower from product

mix changes- Cards spreads lower due to launch of a

low rate card(Virgin) and reduced revolver rates

2.022.162.332.26Equipment Finance

Australian product spreads

2.812.762.602.51Business Deposits

1.621.661.561.52Consumer Deposits

1.791.781.811.76Business

6.946.777.767.50Cards

1.181.181.221.22Mortgages

2H041H042H031H03Product

Indicative

1.8

2.3

2.8

3.3

3.8

1996

1997

1998

1999

2000

2001

1H02

2H02

1H03

2H03

2H04

MarginsSpreads

Long term Group margins and spreads

• Margins down 9 basis points over the year in line with long term expectations

• Spread down 12 basis points over year but flat over second half. 1H decline due to normal trend and some cyclical factors including the change in the monetary policy cycle

• Most of the easing in margins can be traced back to lower Australian spreads in the first half

Series break due to reclassifications


Non-interest income analysis

1,71627(14)18311,6544114726271,539

1,400

1,500

1,600

1,700

1,800

1H04

Financia

l Mark

ets

Specia

lised C

apita

l Grou

pBTFG Aus

t

Cards

Other c

ore

Norm non

-int in

come

Unit trus

t con

solid

ation

Policy

holde

r tax r

ecov

eries

2004

TPS reva

l

Epic

2H04

Non-interest movement 1H04 – 2H04 ($m)

Non-interest movement 2003 – 2004 ($m)

2003

3,004 (15)36

60 (39)

13033

3,17633 (14) 27

3,255

2,950

3,050

3,150

3,250

3,350

2004


Credit cards – fee impact of recent changes

• Net impact of interchange reforms and our strategic response will be broadly earnings neutral by 2005 and beyond.

• Repricing implemented in 1H03

• Interchange reforms Oct 03

• Reward point changes to impact in 2H04

– Airline point changes

– Reward point adjustments

44

21

30

(80)

73

1H04

(71)(80)(74)Rewards costs

58

29

-

103

1H03

5883Cards non-interest income

2427Other fee income

3030Fee repricing

75

2H04

106Interchange income

2H03$m


Expense to income – comfortably under 50%

49495052

30354045505560

2H02 1H03 2H03 1H04 2H04

Banking – expense to income %

47.8%

5050

5351

30

35

40

45

50

55

60

2H02 1H03 2H03 1H04 2H04

Group - expense to income %

48.8%

5863 6162

3035404550556065

2H02 1H03 2H03 1H04 2H04

Total Wealth – expense to income % 58.6%


Expenses – continued tight managment

• Strong revenue growth enabled an increase in investment spend leading cost growth to top of target range

• What we absorbed:- Compliance spend $12m- Project costs expensed $214m- Restructuring charges $24m271

42

156

44

20

9

2006(f)

38Productivity Improvement Programme

41

122

14

20

9

2005(f)

Cumulative total

Wealth integration

Other efficiency initiatives

Lending processes

Outsourcing

Cost Efficiency Pipeline $m

15-Gross up – 1 mth BTFM6$NZ impact

(3)Unit Trusts(22)Epic

(13)Private equity performance fees

4.7%3,7633,940Operating expenses

3,778

2003

3.4%3,908Adjust operating exp.

% Change2004$m

3.010.07.0Basel II

1.9

5.0

4.5-

11.0

2005 Expected

4.3Other (incl revised code of banking practice)

20.0 - 25.02.1Anti-Money Laundering

0.9Sarbanes Oxley1.0FSR

4.06.4IFRS

Expected spend after

FY05

Spend to 2004

Major compliance spending - $m


Deferred expenditure trends

0

50

100

150

200

250

300

350

400

2H03 1H04 2H04Deferred acquistion costsOther deferred expenditure

Deferred expenditure – ($m) • Deferred expenditure increased 15% over year - Higher mortgage broker fees from

increased volumes- Capitalisation of 3rd party credit card

acquisition costs• Deferred acquisition costs incurred in

wealth business• Deferred expenditure is largely amortised

against income• $269m of deferred expenditure is an

APRA deduction from capital


Movements in capitalised software

• Major investments in Reach, Pinnacle and the One Bank Platform are the major contributors to the increase

• Growth in capitalised software expected to ease in 2005

300

66

19

61

29

13

11

26

31

45

Sep 2003

3

5

3

3

3

3

3

3

3

Amort-isationperiod (years)

64Other - New Zealand

58Standardised platform (One Bank)

36Institutional Bank (incl. Financial markets systems)

76Loan process re-engineering (Pinnacle)

45Customer relationship management (Reach)

12Product enhancement

21Channel development and distribution

377

29

36

Sep 2004

Total

Teller platform, New Zealand

Other - Australia

Capitalised software -major projects $m

89

300

2003 Actual

160104Annual amortisation

390377Capitalised software

2004 Actual

2005Forecast$m


Superannuation expense

• Westpac adopted IAS 19 in 2002, with a one-off after tax adjustment of $160m

• We have absorbed the lift to more ‘normal’superannuation expense within our normal expense growth

• Total expense has the potential to go above 9% as the full economic cost of defined benefit obligations are recognised

• Defined Benefit scheme closed to new members in 1999

• Carrying value at 30 Sep 04, $284m

• Actuarial surplus at 30 Jun 04, $142m0

20406080

100120140160180

2001 2002 2003 2004F 2005P0123456789

Expense Expense to Total payroll

Superannuation Expense

$m %


Risk management framework

Board Social Responsibility CommitteeAssists the Board in fulfilling its oversight responsibilities for corporate responsibility and sustainability including matters relating to the monitoring and management of reputation risk.

Board Audit CommitteeAssists the Board in fulfilling its oversight responsibilities for integrity of financial reporting, internal and external audit .

Managing risks inherent in their business including the development of business specific policies, controls, procedures and reporting for relevant risk classes, including reputation risk, within Group Framework and in consultation with Group Risk

Business units

Enterprise wide view of risk and its impact on performanceDevelopment of Group wide strategy, framework and policies for all major risk classes Responsible for consistency, standardisation and control across the GroupDefine and promote Group wide risk management culture

Corporate Core - Group Risk

Group Market Risk CommitteeOptimisation of market risk / reward for traded and non traded market risk. Oversight of portfolio performance, determination of limits with Board approved parameters

Group Operational Risk & Compliance CommitteeRisk decisions and governance of operational risk and compliance including framework and Group policies as well as oversight of the Group’s operational & reputation risk profile

Group Credit Risk CommitteeOptimisation of credit risk / reward and oversight of portfolio performance, determination of limits and authority levels within Board approved parameters

Executive risk committees

Membership CEO (Chair), Group Executives and Group General ManagersSets and leads the risk optimisation agenda for the GroupRecommends to Board appropriate risk reward positioning and links this to decisions on overall capital levels and compositionInitiates and oversees strategies that alter the Group’s risk reward profile and sets boundaries for risk appetite and earnings volatilityOversees the performance, role and membership of the Group Credit Risk, Group Market Risk & Group Operational Risk and Compliance committees

Group Risk Reward Committee

Group AssuranceIndependent reviews and evaluation of the adequacy and effectiveness of management’s control of operational riskIndependent evaluation of credit portfolio quality and performance

Board Risk Management CommitteeAssists Board fulfil oversight responsibilities for matters relating to the management of credit, market and operational risks and compliance with legal and regulatory requirements. Approves credit and other transactions beyond executive management authority.

Independent internal review

Board Committees

Considers and approves the risk / reward strategy of the GroupApproves key risk parameters and monitor the effectiveness of risk management by WestpacReview and approve Westpac’s Group risk management policies relating to credit risk, market risk, operational risk and complianceEnsure appropriate internal control mechanisms are in place and are being implementedMaintain a direct and ongoing dialogue with Westpac’s auditors and, where appropriate, principal regulators

Board


Forward credit indicators in good shape

Housing Portfolio - 90 day delinquencies (%)

1.04

0.64

0.160.150.38

0.150.230.250.26

0.0

0.5

1.0

1.5

1996 1997 1998 1999 2000 2001 2002 2003 2004

1.40

0.900.50

1.271.47

0.75

0.0

0.5

1.0

1.5

2.0

2.5

1999 2000 2001 2002 2003 2004

Aust. Business Banking - 90 day delinquencies (3 month moving average) (%)

WIB - impaired assets to committed exposure(%)

0.480.51

0.14

0.530.63

0.290.37

0.25

0.34

0.00.10.20.30.40.50.60.7

1996 1997 1998 1999 2000 2001 2002 2003 2004

0.820.63

0.901.140.96

1.98

1.021.07

0.96

0.0

0.5

1.0

1.5

2.0

2.5

1996 1997 1998 1999 2000 2001 2002 2003 2004

Consumer Unsecured - 90 day delinquencies (%)


Stressed exposures continue to decline

Categories of stressed exposuresas a % of total commitments (%)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 Sep-04

Watchlist & substandard

90 days past due well secured

Impaired

2,727*3,601*

2,598*2,623*

2,667*

2,401*

Specific provisions / impaired assets (%)

0102030405060

FY98 FY99 FY00 FY01 FY02 FY03 1H04 FY04

General provisions / non-housing performing loans & acceptances (%)

1.0

1.5

2.0

FY98 FY99 FY00 FY01 FY02 FY 03 1H04 FY 04

WBC ANZ CBA NAB

• FY 04 coverage ratio is 2.5x.

* Total $ amount of Watchlist, substandard, 90 Days past due but well secured and impaired loans


Bad debt analysis

$m 2H04 1H04 2H03

Write-offs (146) (128) (133)

Net transfer (to)/from specific provisions (58) (73) (70)

Recoveries of debts previously W/O 38 35 27

Bad debt charge (166) (166) (176)

Increase in general provision (41) (41) (95)

Net bad debt expense (207) (207) (271)

General provision 1,487 1,432 1,393

General provision to non-housing loans & acceptances 1.6% 1.7% 1.7%


Bad debt analysis

2004 Bad debts by business unit

414Total

2New specific

Other1Write-offs

(2)W’backs/Recoveries4241Dynamic provision

NZ

WIB

BCB

34Write-offs

3Write-offs

236Write-offs

3716Dynamic provision(24)W’backs/Recoveries

11New specific

79New specific

(22)W’backs/Recoveries(5)(65)Dynamic provision

90(68)

82

340Dynamic provisionW’backs/Recoveries

New specific

43

14

8

16 16 17

32 3331

23

0

5

10

15

20

25

30

35

40

45

50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Long run expectation 25-35 basis points

Total bad & doubtful debt charge to average loans and acceptances (basis points)


Composition of portfolio

57% 55% 54% 51% 49% 50% 50%

34% 36% 38% 40% 42% 42% 42%

8% 8%9%9%8%9%9%

0%

20%

40%

60%

80%

100%

Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04

Business / Corporate Consumer Mortgages Other Consumer

Total Committed Exposure1 by customer segment• Mortgages represent 42% of total commitments and 57% of funded lending

• 64% business / corporate exposure exceed investment grade

• Other consumer includes credit cards, personal lending and margin lending

Personal Loans

CardsMargin LendingOther

consumer5%

Mortgages57%

Business / Corporate

38%

On balance sheet lending - September 2004

17% 17% 18% 14% 13% 15% 14%

11% 8%

12% 12% 11%12% 12% 11%

16% 17% 15% 16% 16% 16% 17%0.7% 0.6%

7%7%8% 7%9%

11%

0.9%0.9%0.9%1.2%1.3%

0%

20%

40%

60%

80%

Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04AAA to AA- A+ to A- BBB+ to BBB- BB+ to B+ <B+

Total Committed1 Business / Corporate exposure

1. Total committed exposures include outstanding facilities and un-drawn commitments that may give rise to lending risk or pre-settlement risk


Total exposure by region

• Exposures outside core markets represent less than 3% of total committed exposures – sub investment grade represent less than 0.3% of total exposures (excluding core markets of Australia and New Zealand)

$m Australia NZ/ Pacific Americas Europe Asia ex

Japan Japan Group

AAA to AA- 35,950 6,631 777 367 127 113 43,965

A+ to A- 14,195 2,649 1,284 1,717 - - 19,845 BBB+ to BBB- 25,419 5,374 686 1,198 59 - 32,736

BB+ to B+ 42,715 8,295 32 327 4 30 51,402

<B+ 1,362 521 49 231 3 - 2,165 Secured consumer 110,128 20,946 - - - - 131,075 Unsecuredconsumer 18,268 3,199 - - - - 21,467

248,037 47,614 2,828 3,841 192 143 302,654

1. Total committed exposures by booking office at 30 September 2004


Reduced single name concentrations

0 200 400 600 800 1,000 1,200

A+

A

BBB+

A+

A+

A

BBB+

BBB

AA+

BBB+

Top 10 exposures to corporations and NBFIs – September 04

S&P Rating or equivalent

$m

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2000 2001 2002 2003 2004

Top 10 exposures as a % of total committed exposure – September 04

Total exposure of Top 10 = $6.0bn -September 2004


Industry concentrations

Note: Excludes governments

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Non-Metal Product Manufacturing

Oil and Gas

Insurance

Mining

IT and Telecommunication

Healthcare

Metal Products

Forestry and Paper

Chemicals

Media and Publishing

Personal and Household Goods

Hospitality

Personal and Other Services

Personal and Household Goods Retailing

Transport and Postal Services

Utilities

Construction

Machinery and Equipment

Business Services

Food and Beverage

Agriculture and Fishing

Financial Institutions

Property

Banks

% of Total Committed Exposure - September 04


Key portfolio exposures - Energy

Global energy portfolio

179116

195

815

2,926

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

4,231

AAA to BBB+

BBB to BBB-

BB+ to BB

BB-

<BB-

$m

89%

2%4%5%

Australia/NZ (89% Investment grade)

Asia (75% Investment grade)

Europe (100% Investment grade)

Nth America (79% Investment grade)

0.74.5CBA*

na9.7ANZ*

2.311.4NAB*

0.54.2WBC

Total non-investment

grade

Energy$m

*Source: Most recently available company reports


Housing market cools, but still healthy

• Housing has cooled following a strong run-up and after the RBA lifted rates late in 2003.

• Total finance, after an initial fall, has stabilised, with monthly new lending of $12bn.

• That is still about 50% above the previous peak of 1999.

• Lending to owner-occupiers is now moving higher.

• First home-buyers are coming back into the market, suggesting that affordability is not prohibitive.

Housing finance remaining at high levels

0

3

6

9

12

15

18

Aug-92 Aug-94 Aug-96 Aug-98 Aug-00 Aug-02 Aug-04

AUDbn/mth

0

3

6

9

12

15

18AUDbn/mth

'total' finance

investor finance, ex-construction

owner-occupier finance, ex refinancing

Source: ABS, Westpac

paths diverge

First home buyers returning

0

5

10

15

20

25

30

35

40

Aug-92 Aug-94 Aug-96 Aug-98 Aug-00 Aug-02 Aug-04

'000

0

5

10

15

20

25

30

35

40First home buyers 'Upgraders' ex-refinancing

'000

Source: RBA, ABS, Westpac

first home buyer interest in housing on the rise


Housing demand

• The housing construction downturn is set to be mild compared with past cycles.

• Net overseas migration numbers are up a third from the second half of the 1990s.

• This has boosted housing requirements by almost 15% from that of the late 1990s.

• Dwelling approvals are 17% lower so far ~ a moderate fall compared with 30% to 40% declines in past downturns

Immigration impacts housing needs

0

50

100

150

200

250

300

1990s H2 2003 1990s H2 2003

'000 pa

0

50

100

150

200

250

300'000 pa

Source: ABS, Westpac

Population change Housing requirements

immigration

natural increase

smaller households

rising population

demolitions, unoccupied

145

160 / 165

Approvals only modestly off 2003 highs

0

5

10

15

20

25

Sep-89 Sep-92 Sep-95 Sep-98 Sep-01 Sep-04

'000

0

50

100

150

200

250'000

houses, priv . (lhs) units, priv . (lhs) total annualised (rhs)

underlying demand


Household debt - a ‘catch-up’ phase

Household debt• Australian household debt levels lifted higher over the last decade.

• This was from below average levels by international standards.

• This catch-up reflected Australia’s delayed shift to a low inflation, low interest rate environment.

• Household debt servicing costs are up, but may be at a peak ~ with a slight fall in Q2.

An international comparison

01

23

45

67

8

9

10

Jun-76 Jun-80 Jun-84 Jun-88 Jun-92 Jun-96 Jun-00 Jun-04

%

0

20

40

60

80

100

120

140

160%

Interest cost to household income (lhs)

Household debt to household income (rhs)

Source: RBA

0

50

100

150

200

250

1979 1983 1987 1991 1995 1999 2003

%

0

50

100

150

200

250%

Australia US Netherlands

Japan UK Germany

Source: RBA

Australian debt levels 'unusually' low in the 1980s


Households are still feeling good

• Consumer confidence is the best in a decade.

• Households feel a sense of job security, with the unemployment rate the lowest in 23 years.

• Families judge their finances to be in a healthy position ~ in part boosted by payments in the May Federal budget.

• Sentiment towards buying a dwelling has bounced back from a sharp fall in 2003.

Consumer confidence at a decade high

Household stress not apparent

0

20

40

60

80

100

120

140

160

180

200

Sep-86 Sep-89 Sep-92 Sep-95 Sep-98 Sep-01 Sep-04

index

60

70

80

90

100

110

120

130

140index

Sentiment: good time to buy a dwelling*Consumer sentiment index (rhs)

Source: Westpac, Melbourne Institute

2

4

6

8

10

12


%

0

20

40

60

80

100

120index

Unemployment rate (lhs)Family finances vs year ago (rhs)

Source: ABS, Westpac-MI

* Family finances –Westpac Melbourne Institute Consumer Sentiment Index Aug- 04


Mortgage portfolio – characteristics

40 41 43 45 46 47

2123

2528

31 33

1211

107

54

0

10

20

30

40

50

60

70

80

90

1H02 2H02 1H03 2H03 1H04 2H04

Australian Mortgage Portfolio$ bn

Owner occupiedInvestmentEquity Access CAGR = 14%

13%

36%

51%

Proportion of total

• Housing growth has remained solid - Owner occupied up 4%- Investment up 18%- Equity Access up 20%

• Funding for alterations and additions has boosted equity access lending

• Average LVR of new loans 65%—up from 63% in 2003

• Total bad debts (excluding dynamic provisioning) are less than 1 basis point


Mortgage – delivering profitable growth

5

10

15

20

25

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Australian housing market share (%)

Source RBA

• Mortgages lending up 12% • Mortgages margins down 4 basis points • Mortgage growth below system (with market

share easing) due to:- Holding the proportion of lending via

brokers constant- Not aggressively pursuing low-doc

lending- Avoiding higher risk investment lending

• Opportunity to improve sales force effectiveness remains

• Third party introduced loans represent 30% of new loans in 2H04 by value

• 26% of outstanding mortgage portfolio is broker originated 31

3031 31

32 33

3132 32

30

3433

31 31

33

3130

2930

20

25

30

35

Mar

-03

Apr-0

3M

ay-0

3Ju

n-03

Jul-0

3Au

g-03

Sep-

03Oc

t-03

Nov-

03De

c-03

Jan-

04Fe

b-04

Mar

-04

Apr-0

4M

ay-0

4Ju

n-04

Jul-0

4Au

g-04

Sep-

04

%

Third party introduced loans(Proportion of total by value)

2.00.2

$bn

CBD ApartmentsLow Doc Portfolio

CBD and Low-Doc

< 1%2%

% of portfolio


Mortgage Insurance

Mortgage insurance structure• 100% mortgage insurance where loan to value (LVR) ratio > 80%. Some exceptions include LVR 80-80.99, short-term /bridging loans and some employee loans – this represents approx. $2b in exposure.

• Stop loss reinsurance cover over all retained Lenders Mortgage Insurance underwriting risk in place with a "AA" rated reinsurer. Stop loss reinsurer assumes abnormally high claim costs incurred in any year above a 1 in 25 years loss event through to a 1 in 70 years loss event

• From 1 July 2005, Australian Lenders Mortgage insurers, including captive insurers, will be required to meet revised APRA capital requirements. Westpac intends maintaining its current captive mortgage insurance model under the new capital framework

18%Westpac Lenders

Mortgage Insurance

100%

AA Insurer

30% - Reinsured

82%

Proportion of portfolio with initial LVR > 80%


Housing portfolio quality

• Nominal changes in sensitivities since last year • Changes due to portfolio growth and levelling out of house prices• Capacity to absorb interest rate rises strong with 75% of amortising

borrowers repaying in excess of required minimum

Westpac 2003 stress testing results

Scenario BScenario ABase case

112.712.5

20.02.2

0.00.0

Combined effect $mCombined effect - bps

7.66.8

6.62.3

5.60.0

Unemployment rate - % Individual effect $m

2024.6

107.2

00.0

Housing prices fall - % Individual effect $m

11.19.3

9.13.7

7.10.0

Interest rates - % paIndividual effect $m

Westpac 2004 Stress Test Results


Group business unit and Pacific Banking

Pacific Banking Group business unit

98881Core earnings

56

(30)

(2)

(51)

67

72

2004

171Net interest income

(Large)2Bad debts

(3)58Cash earnings

(20)(25)Tax & OEI

-(51)Operating exp.

1061Non-interest income

% Change

2003$m

(Large)(154)(75)Other equity dist

na10na2004 TPS

70

95

(40)

159

101

58

2004

(48)111Operating income

(Large)(14)Bad debts

(54)153Cash earnings

(31)137Tax

51105Core earnings

Large(6)Operating exp.

% Change

2003$m


Group business unit

Other Includes Group Treasury and Corporate Office activities

Most group costs allocated to business units. Unallocated corporate centre costs

Generally since late 1990’s we have sought to minimise reliance on one-off items. Increase in general tax provision of $35m. Bad debts increased from provision against a group level counterparty exposure

Centrally held one-off gains/provisions

Includes policy holder tax recoveries (no cash earnings impact) and elimination of tax effective gross-up.

Financial/management accounting adjustments

Surplus equity over that required by business. 2H04 buy-back reduced level of earnings on centrally held equity.

Earnings on unallocated equity

Management of centralised funding and asset and liability management. Cash earnings down $9m on prior period.

Group Treasury

CommentComponents


Strong dividend – sustainable pay-out ratio

61%

64%66%

69%

72%

75%

Derived maximum payout ratio

RWA Growth Scenarios

11%10%

9%

12%

8%

7%

1 Assumptions:– Return on equity 20%, ACE Ratio of 4.75%– Maximum payout ratio assumes Wealth business

continues to grow at current levels – Includes no buffer for volatility in earnings and

deductions (FITB/FCTR)– DRP dilution neutralised through stock

repurchases– Strong franking capacity current balance $571m

62

5859 59

62 6163 62 63

61

50

55

60

65

1H00

2H00

1H01

2H01

1H02

2H02

1H03

2H03

1H04

2H04

Payout ratio (%)

Dividends per share (cents)

26 28 30 32 34 36 38 40 42 44

05

101520253035404550

1H00

2H00

1H01

2H01

1H02

2H02

1H03

2H03

1H04

2H04

Illustrative pay-out ratio analysis1

Presented July 2004


Capital - target ranges

• Capital levels at or above target ranges

• ACE ratio calculated on consistent basis ie. APRA deduction of deferred expenses ($269m) not removed

• Westpac will review its target capital ranges once impact of IFRS and Basel II becomes clear 4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

30 S

ept

2003

Cas

hEa

rnin

gs

Div

iden

ds

DR

P/O

ptio

ns

Buy

back

s

RW

A

Oth

er

30 S

ept

2004

5.05%

162 bps (100 bps)

(36 bps)(50 bps)

(22 bps)4.82%

23 bps

Adjusted common equity movement (%)

Capital ratios and target ranges (%)

3 .0%

3 .5%

4 .0%

4 .5%

5.0%

5.5%

6 .0%

6 .5%

7.0%

7.5%

8 .0%

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

ACE Tier 1

Buybacks completed ($m)

505

1,682

407559

$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800

2000 2001 2002 2003 2004


2004 hybrid issue complicates reporting

Post IFRS implementation the instrument will be debt and swap will be effective hedge

Hedge achieved through offsetting USD capital invested in UK/US

Swap put in place for risk management but not given hedge treatment

Typically swapped into NZD

Mark to market of swap will impact NPAT until 1 Oct 2005 (IFRS transition date) but we will isolate from cash earnings. Revaluation of the hedge taken through the non-interest income line.

Issued in USD (525m) and funds used in NZ (NZD)

2004 Trust Preferred Securities

USD issues accounted for as equity, no hedge accounting available

Sufficient capital deployed to offshore branches for commercial and regulatory purposes providing natural hedge

Historical practice

2,559Cash earnings10MTM TPS Hedge

(154)Preference Dividends164Goodwill amortisation

2,539Net profit after tax


Basel II progress

• Basel II developments:

- Final accord released end June 2004 –recalibration of factors could still occur

- Start date delayed to 2008

• Westpac will be capable of Basel II reporting by end 2006

• Repeated quantitative impact studies show Westpac’s risk weighted assets falling by at least 25%

0%

10%

20%

30%

40%

Corporate Mortgage Other Retail SME OtherExposure

Group 1 banksWestpac

Proportion of assets across classes

-80%

-60%

-40%

-20%

0%

20%

Corporate Mortgage Other Retail SME OtherExposure

Group 1 banks

Westpac

Change in RWA under Advanced IRB

Group 1 banks are large, diversified with Tier 1 capital in excess of Euro 3bn


IFRS – key issues

Significant increase - volatility as mark to market of fund surplus subject to market movements

Moderate increase - volatility moves with economic cycle

High impact - significant volatility if hedge accounting not achieved.

Comments

Bad debt charges

Superannuation

Hedge Accounting

Key areas of impact

• IFRS project costs are within normal compliance spend and arise over 3 years

• Start date for comparatives may be delayed to 1 October 2004 following SEC ruling

• Planning to run the general ledger in parallel for 2005 (and potentially 2006) with only a summarised reconciliation on how pre IFRS reporting matches post IFRS reporting

• Ability to provide multi-year trend information is limited as no comparatives for IAS 32 & 39

• Short to medium term earnings volatility clearly the biggest issue

• We have yet to reach a conclusion on acceptable degrees of earnings volatility

• Preliminary assessment of potential volatility conducted

• Assessing viability and cost/benefit of volatility-mitigating actions e.g. externalising hedges and the investment mix of super fund. 0

51015202530354045

FY 97

1H 98

2H98

1H 99

2H99

1H 00

2H00

1H 01

2H01

1H 02

2H02

1H 03

2H03

1H04

2H04

Bad Debt charge before DPBad Debt charge including DP

Net bad and doubtful debt charges pre and post DP

Basi

s po

ints


Structured Finance – portfolio

• Westpac conducts certain structured finance transactions with exposure primarily to global financial institutions

• Total portfolio size approx $10.6bn with a mix of asset and liability transactions

• Structured Finance transactions currently under review by the New Zealand Inland Revenue Department (IRD) since late 2003

• Westpac initially sought multiple layers of advice to ensure the transactions conformed with New Zealand tax law and this was confirmed by the IRD in a binding ruling on one transaction Other transactions were modelled on this ruling, and new recent advice confirms earlier view

• On 30 September 2004 Westpac received amended assessments relating to transactions in the 1999 year from the IRD. The maximum tax liability reassessed for the 1999 year is NZ$25m (including interest)

• Should the NZIRD take the same position across all of these transactions for the periods up to and including the year ended 30 September 2004, Westpac has calculated that the maximum potential overall primary tax liability in dispute would be approximately NZ$647m (tax effected) including interest


Structured Finance – portfolio

• On 21 September 2004 the NZ government announced a change in taxation rules with the introduction of a thin capitalisation regime

• New rules specific to banks will deny interest deductions if the Bank does not hold a level of capital equivalent to four percent of New Zealand risk weighted assets

• Change will make current structured finance activities in New Zealand uneconomic (no new transaction done in NZ in over 2 years)

• New rules apply from 1 July 2005

• Impact on Westpac:

-Reduction in NZ Structured Finance revenue going forward, reducing from ~$85m 30 September 04, ~$39m to 30 June 05 and nil in 2006

-Total Structured Finance portfolio revenue $173m at 30 September 04

-Alternate transaction structures in other jurisdictions may see loss of NZ revenue offset by around half by 2006


Clear and simple strategy

Service – Profit Chain

Customer Focus

Internal Service Quality

Employee Commitment

Employee Retention

Employee Productivity

Superior Customer

Experience

Customer Satisfaction

Customer Loyalty

Revenue Growth

Profitability

Shareholder Value

Strategy Outcomes

Medium termObjectives

� Best practice employee commitment

� Service leadership in our industry

� Top quartile shareholder returns

� Leader in corporate responsibility

Employee Customer Shareholder

How?Differentiator: Superior

ExecutionOur high performanceculture:�Quality people�Effective people &

performance mgt processes

�Values

Vision

“To be a great Australian and NZ Company”

� A great place to work� A superior customer

experience� 1st quartile shareholder

returns� A good corporate citizen

Mission“To be at the forefront for service in our industry by

September 2005”

ValuesTeamwork

IntegrityPerformance

‘Ask Once’


Improving sustainability – staff, customers, community

Number 1 In the global banking sector 2004/2005 – for third consecutive year

Australia - Number 1 company overall – only company to receive a AAA rating.

GovernanceMetrics International – One of 22 (out of 2,100) companies globally to achieve a top 10.0 score for corporate governance

Leadership (%)Westpac senior leadership provides a clear sense of direction - % favourable

Consumer satisfaction% of main financial institution customers very or fairly satisfied quarterly moving average

55

60

65

70

75

2000 2001 2002 2003

WBC Peer Avg

30

40

50

60

70

80

2000 2001 2002 2003 2004


Strategic options

Keep open mind but low probability

• No compelling offshore competitive advantage• Low synergies• Learn from other’s mistakes

International expansion

Maintain watching brief• No major capability gaps• Very limited opportunity to generate value at

current prices• Disciplined adherence to criteria has served us

well-Aligned with strategic direction -Strict valuation criteria-Not unduly diverting

Acquisition

StatusCommentsOption

• Aust/NZ lowest risk and highest value available• Significant opportunities still remain within

existing customer franchise• No diversion risk

Aggressively pursueOrganic growth


An experienced executive team

Joined Westpac 1982, Appointed CFO in Feb 2001. Previously Deputy CFO and has held CFO roles in both retail and institutional banking

Jan 2001Chief Financial OfficerPhilip Chronican

BiographyDate joined Group

Executive

TitleName

Mar 1999

Apr 2002

Jan 2002

May 2002

Jul 2000

Nov 2002

Oct 1990

Group Executive New Zealand & Pacific Banking

Group Executive Business and Consumer Banking

Group Executive Business & Technology Solutions & Services

Group Executive Westpac Institutional Bank

Chief Executive Officer BT Financial Group

Group Executive People and Performance

Chief Executive Officer

Joined Westpac in 1994, in current role since October 2002. Ann has headed People and Performance for the Group and was CEO Bank of Melbourne following the Merger in 1997

Ann Sherry

Joined Westpac in April 2002 as Group Executive New Zealand & Pacific Banking. Appointed to current role in August 2002. Extensive experience in retail banking including CEO Australian Financial Services for National Australia Bank and CEO Bank of New Zealand

Mike Pratt

Joined Westpac to current role in January 2002. Michael has 30 years experience in Information Technology covering a broad range of industries

Michael Coomer

Joined Westpac 1996, in current role since 2002. Previously with AIDC, Citicorp Global Asset Management and Citigroup

Philip Coffey

Joined Westpac 2000, and appointed to current role September 2000. Prior to that headed the Australian Business & Consumer Bank. Before joining Westpac was an Executive Director of Lend Lease and CEO of MLC Ltd

David Clarke1

Joined Westpac 2000, as Group Secretary and General Counsel. Previously Partner of a Major Law firm, Mallesons Stephen Jaques. In current role since 2002

Ilana Atlas

Joined 1990, CEO since 1999. Headed all major business units in Westpac prior to CEO appointment in March 1999. Extensive prior experience in financial sector including in the IMF and the Australian Federal Treasury

David Morgan

1. David Clarke will be leaving Westpac in Feb 2005 and Rob Coombe has been appointed to take over as CEO BT


Australian and New Zealand economic outlook

Key economic indicators

2.84.7GDP3.84.2Unemployment

Australia3.33.7GDP5.75.7Unemployment

New Zealand

World (Calendar year)4.04.5GDP

Jun 05%Financial year ended Jun 04

%

• Australia and New Zealand economic fundamentals sound:

- Solid domestic demand- Low unemployment

• Business surveys continue to paint a positive outlook

• Further slight rise in interest rates not expected in Australia until 2005

Source: Westpac

-4

-2

0

2

4

6

8

Private demand Net Exports GDP

Perc

enta

ge p

oint

con

tribu

tion

2002 2003

2004f 2005f

Key contributors to Australian GDP (%)


Credit growth expected to ease as housing cools

-8

-4

0

4

8

12

16

20

24

Sep-90 Sep-92 Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04-8

-4

0

4

8

12

16

20

24

Housing Business Total (Aust)Total credit average Total Housing average

Forecasts (To Sep 2005)

Source: RBA, Westpac

Australian credit growth (%)


Credit growth and nominal non-farm GDP

• Credit growth has historically tracked the direction of nominal GDP growth but with a multiplier of around 1.5 times

• Currently credit growth is tracking above this long term trend at twice nominal GDP

• Looking forward, credit growth is expected to remain higher than nominal GDP but moderate to be more in line with this longer term trend

-4

0

4

8

12

16

20

Jun-

80

Jun-

84

Jun-

88

Jun-

92

Jun-

96

Jun-

00

Jun-

04

% ann

-6

0

6

12

18

24

30% ann

nominal non-farmGDP (lhs)credit (rhs)

Source: ABS, RBA

Credit growth and nominal GDP


Supportive credit quality environment

• Forward indicators of credit quality remain strong

- Unemployment at generational low

- Consumer confidence is at a decade high, households positive about their finances

- Robust corporate profits

- Comfortable levels of business gearing

- No major corporate defaults

- Low delinquency rates across portfolio

0

2

4

6

8

10

12


% index

Unemployment rate (lhs)Source: ABS, Westpac-MI

Households ‘stress’ not apparent

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04

%

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8%

Source: ABS

Corporate balance sheets in good shapeDebt to equity ratio


Known influences on 2005 earnings

• Lower credit growth• Income loss from NZ structured finance. Impact expected to be $20m

to $40 in 2005 depending on alternative transactions• Continuing competition – particularly in deposits

5-8Interest Income

29-31

25-35 bps

2-4

5-9

Medium term ranges

(%)

• Nothing to suggest would be outside current range

• Current environment suggests we will continue to be at the bottom of the range

• Compliance project spend increasing• Higher superannuation charges• Increased amortisation of capitalised software• Sticking to 2-4% target, although likely to be at top of range

• Cards impact will not be repeated• Financial markets environment more stable

Specific influences in 2005

Bad Debts

Tax Rate

Expenses

Non-Interest Income

Conversion to IFRS likely to alter the treatment of key drivers and broaden the range of outcomes in any one yearNB: This is not earnings guidance


Where are the risks?

Risk Probability of occurrence

• Further intensified competition Medium

• Impact of new entrants Medium

• Housing market collapse Low

• Blow-out in bad debts Low

• Greater than expected funds outflows Low

• Re-regulation Low

• New wave of corporate collapses Low

• Global economic recession Low


Positive outlook

• More challenging environment

• Asset quality remaining pristine

• Good earnings momentum across all businesses

• Continue to deliver strong results at the upper end of the sector


Investor relations contacts

Westpac’s Investor Relations Team

Andrew Bowden 61 2 9226 [email protected]

Hugh Devine 61 2 9226 [email protected]

Suzanne Evans 61 2 9226 [email protected]

Natasha O’Reilly 61 2 9226 [email protected]

AddressLevel 2560 Martin PlaceSydney NSW 2000AustraliaFax 61 2 9226 1539

For further information on Westpac including:

• Annual reports• Financial result announcements• Presentations and webcasts• Corporate history• Key policies

Please visit our dedicated investor website

www.westpac.com.au/investorcentre


Disclaimer

The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities.

The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs.

The financial information contained in this presentation includes

non-GAAP financial measures. For a reconciliation of these measures to the most comparable GAAP measure, please refer to financial statements filed with the Securities Exchange Commission and Australian Stock Exchange.

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